FAQ | Calculating Employee Hours Under the ACA
Understanding the importance of which workers qualify as full-time, part-time, temporary, and seasonal under the Affordable Care Act (ACA) will keep you in compliance when calculating their benefits coverage and offers of coverage throughout the year.
How can you properly keep track of and calculate employees’ hours correctly to stay compliant with the ACA? We answer some frequently asked questions related to correctly calculating employee hours and provide some expert best practices to keep your company in compliance.
How Do I Calculate My Employees’ Hours?
The first question is the most obvious: how do I calculate my employees’ hours? You will need to determine full-time employment hours using either the “monthly” or the “look-back” measurement method.
What Is the ‘Monthly’ Measurement Method for Calculating Employee Hours?
Under the ‘monthly’ measurement approach, the employer can calculate an employee’s hours on a month-by-month basis. If an employee works at least 130 hours each month or at least 30 hours per week in a calendar month, they are a full-time employee. Hours of service also include paid time off, such as for sick time, vacation time, jury duty or leave of absence.
What Is the ‘Look-Back’ Measurement Method for Calculating Employee Hours?
Under the “look-back” measurement method, the employer can figure out the number of hours an employee worked in the preceding period. Companies cannot use this approach to determine whether a worker is a full-time employee for defining applicable large employer (ALE) status.
To calculate your number of full-time equivalent employees, use the following steps:
- Combine the total hours worked for the month by all your non-full-time employees. You do not need to include more than 120 hours per employee.
- Divide this total number of hours by 120.
EXAMPLE:
A company has 30 full-time employees for every calendar month and 30 part-time employees for every calendar month. Every part-time employee works 60 hours per month.
The combined hours of work for the company’s part-time employees is 1,800. (30 x 60 = 1,800).
Divide this total number of hours by 120 to get 15. (1,800 / 120 = 15)
This company has 15 full-time equivalent employees for every month.
Add this number to the number of full-time employees to get a total of 45. (15 + 30 = 45)
Since this company has 45 Affordable Care Act full-time employees, it is not an applicable large employer.
How Do I Calculate Full-Time Equivalent (FTE) Employees?
When an employer has a 30-hour workweek, they count employees who are scheduled to work 30 hours per week as 1.0 FTEs.
To calculate FTEs:
- Create a list of employees paid with a W-2, noting their names and weekly work hours, excluding paid leave. Exclude 1099 contractors.
- Define full-time as 30 hours per week. Anyone below is part-time based on your company's standard.
- Calculate FTEs by multiplying weeks in a year by full-time hours.
- Add total full-time and part-time hours worked annually.
- Identify part-time FTE by dividing total part-time hours by hours worked by a full-time employee annually (2,080 hours).
- Determine the overall FTE by adding full-time FTEs (1 per full-time worker) to part-time FTE.
EXAMPLE:
Your company has 150 full-time employees who work a standard 30-hour week and 75 part-time employees who contribute an average of 20 hours per week.
Combine the hours for part-time employees (75 employees × 20 hours/week = 1500 hours/week).
Then, to find FTE, divide by the hours for a full-time employee (1500 hours/week / 2080 hours/year = 0.72).
Full-time employees are 1 FTE each. So, for 150 full-time employees, the FTE is 150 FTEs. To determine total FTE, add the FTE from part-time and full-time employees (150 FTE (full-time) + 0.72 × 75 FTE (part-time) = 198.75 FTE).
In this case, your organization has 198.75 Full-Time Equivalents (FTEs) when considering both full-time and part-time employees for ACA calculation purposes.
Can I Exclude Hours Worked for Any Employees?
Are there any hours worked by any employees that you can exclude? Employers may not have to track or count hours worked for volunteer employees, student employees, or teachers and adjunct faculty members.
Volunteer Employees
You can exclude hours worked by bona fide volunteer employees. The law defines bona fide volunteers as employees of a tax-exempt organization or governmental entity whose only form of compensation comes in the form of an allowance or reimbursement for reasonable expenses, or in reasonable benefits and nominal fees connected to the volunteer service.
Student Employees
A company does not need to count hours performed by students in subsidized positions through a federal or state work-study program. However, if a student employee gets paid or is eligible for payment beyond the federal or state work-study program, these hours must count toward determining benefits eligibility.
Members of Religious Orders
Specific circumstances permit an “hour of service” not to count if performed by a person who is subject to a vow of poverty under a religious order. The employee needs to be a member of the religious order, and the employee must perform tasks typically required of that order’s active members for the exclusion to apply.
Teachers and Adjunct Faculty
Since compensation usually doesn’t tie directly to a teacher or adjunct faculty member’s number of hours worked, these employees can present challenges to employers.
For instance, compensation often links to hours in the classroom and not to hours worked outside the classroom, such as time spent on grading papers and tests, preparing lessons, and counseling students.
The law currently requires employers to use a crediting method for hours of service worked by teachers and adjunct faculty members.
Do I Count New Hires in Employee Numbers for This Calendar Year?
If you hire additional employees, including part-time employees, during this calendar year, you will count them when determining if you are an ALE for the next calendar year. You can use the full-time equivalent employee calculator to help you determine the number of full-time equivalent employees you have.
Should an employer take all employees into account when determining if they are an ALE? Typically, every worker counts as either a full-time employee or a full-time equivalent employee when figuring whether an employer is an ALE. There are some exceptions, however, such as the following.
Seasonal Employees
Employers are not ALEs if their workforce is over 50 full-time employees for 120 days or fewer in the previous calendar year, and all the employees above the 50 full-time employed workers are seasonal workers employed for no more than 120 days.
Employees with VA/TRICARE Coverage
Employees with coverage under a VA health program or TRICARE do not count toward determining whether an employer is an ALE.
What Happens If I Don’t Report Employee Hours Correctly?
What are the consequences if you do not report employee hours correctly? You must pay a penalty if you are an eligible employer and the following circumstances apply:
- Your company does not offer health insurance to at least 95% of full-time employees.
- At least one of your full-time employees received a cost-sharing subsidy or premium tax credit in the federal or state Marketplace.
You must offer coverage that provides minimum value and is affordable. Coverage is affordable if the required contribution from the employee is not more than 8.39% in 2024 of the employee’s household income. For a plan to provide minimum value, it must cover at least 60% of a standard population’s covered healthcare expenses.
You may have to pay penalties if you do not report employee hours correctly, such as the ACA part-time employees penalty. The penalty for failing to file an accurate information return is $270 for every return in which the failure is present.
The total penalty in a calendar year can reach $3,339,000. You can incur the same amount for failing to provide a correct payee statement. Penalties may get waived if the failure was a result of reasonable cause rather than willful neglect.
Have Questions or Need More Information?
Understanding the importance of which workers qualify as full-time, part-time, temporary, and seasonal under the Affordable Care Act (ACA) will keep you in compliance when calculating their benefits coverage and offers of coverage throughout the year.
How can you properly keep track of and calculate employees’ hours correctly to stay compliant with the ACA? We answer some frequently asked questions related to correctly calculating employee hours and provide some expert best practices to keep your company in compliance.
How Do I Calculate My Employees’ Hours?
The first question is the most obvious: how do I calculate my employees’ hours? You will need to determine full-time employment hours using either the “monthly” or the “look-back” measurement method.
What Is the ‘Monthly’ Measurement Method for Calculating Employee Hours?
Under the ‘monthly’ measurement approach, the employer can calculate an employee’s hours on a month-by-month basis. If an employee works at least 130 hours each month or at least 30 hours per week in a calendar month, they are a full-time employee. Hours of service also include paid time off, such as for sick time, vacation time, jury duty or leave of absence.
What Is the ‘Look-Back’ Measurement Method for Calculating Employee Hours?
Under the “look-back” measurement method, the employer can figure out the number of hours an employee worked in the preceding period. Companies cannot use this approach to determine whether a worker is a full-time employee for defining applicable large employer (ALE) status.
To calculate your number of full-time equivalent employees, use the following steps:
- Combine the total hours worked for the month by all your non-full-time employees. You do not need to include more than 120 hours per employee.
- Divide this total number of hours by 120.
EXAMPLE:
A company has 30 full-time employees for every calendar month and 30 part-time employees for every calendar month. Every part-time employee works 60 hours per month.
The combined hours of work for the company’s part-time employees is 1,800. (30 x 60 = 1,800).
Divide this total number of hours by 120 to get 15. (1,800 / 120 = 15)
This company has 15 full-time equivalent employees for every month.
Add this number to the number of full-time employees to get a total of 45. (15 + 30 = 45)
Since this company has 45 Affordable Care Act full-time employees, it is not an applicable large employer.
How Do I Calculate Full-Time Equivalent (FTE) Employees?
When an employer has a 30-hour workweek, they count employees who are scheduled to work 30 hours per week as 1.0 FTEs.
To calculate FTEs:
- Create a list of employees paid with a W-2, noting their names and weekly work hours, excluding paid leave. Exclude 1099 contractors.
- Define full-time as 30 hours per week. Anyone below is part-time based on your company's standard.
- Calculate FTEs by multiplying weeks in a year by full-time hours.
- Add total full-time and part-time hours worked annually.
- Identify part-time FTE by dividing total part-time hours by hours worked by a full-time employee annually (2,080 hours).
- Determine the overall FTE by adding full-time FTEs (1 per full-time worker) to part-time FTE.
EXAMPLE:
Your company has 150 full-time employees who work a standard 30-hour week and 75 part-time employees who contribute an average of 20 hours per week.
Combine the hours for part-time employees (75 employees × 20 hours/week = 1500 hours/week).
Then, to find FTE, divide by the hours for a full-time employee (1500 hours/week / 2080 hours/year = 0.72).
Full-time employees are 1 FTE each. So, for 150 full-time employees, the FTE is 150 FTEs. To determine total FTE, add the FTE from part-time and full-time employees (150 FTE (full-time) + 0.72 × 75 FTE (part-time) = 198.75 FTE).
In this case, your organization has 198.75 Full-Time Equivalents (FTEs) when considering both full-time and part-time employees for ACA calculation purposes.
Can I Exclude Hours Worked for Any Employees?
Are there any hours worked by any employees that you can exclude? Employers may not have to track or count hours worked for volunteer employees, student employees, or teachers and adjunct faculty members.
Volunteer Employees
You can exclude hours worked by bona fide volunteer employees. The law defines bona fide volunteers as employees of a tax-exempt organization or governmental entity whose only form of compensation comes in the form of an allowance or reimbursement for reasonable expenses, or in reasonable benefits and nominal fees connected to the volunteer service.
Student Employees
A company does not need to count hours performed by students in subsidized positions through a federal or state work-study program. However, if a student employee gets paid or is eligible for payment beyond the federal or state work-study program, these hours must count toward determining benefits eligibility.
Members of Religious Orders
Specific circumstances permit an “hour of service” not to count if performed by a person who is subject to a vow of poverty under a religious order. The employee needs to be a member of the religious order, and the employee must perform tasks typically required of that order’s active members for the exclusion to apply.
Teachers and Adjunct Faculty
Since compensation usually doesn’t tie directly to a teacher or adjunct faculty member’s number of hours worked, these employees can present challenges to employers.
For instance, compensation often links to hours in the classroom and not to hours worked outside the classroom, such as time spent on grading papers and tests, preparing lessons, and counseling students.
The law currently requires employers to use a crediting method for hours of service worked by teachers and adjunct faculty members.
Do I Count New Hires in Employee Numbers for This Calendar Year?
If you hire additional employees, including part-time employees, during this calendar year, you will count them when determining if you are an ALE for the next calendar year. You can use the full-time equivalent employee calculator to help you determine the number of full-time equivalent employees you have.
Should an employer take all employees into account when determining if they are an ALE? Typically, every worker counts as either a full-time employee or a full-time equivalent employee when figuring whether an employer is an ALE. There are some exceptions, however, such as the following.
Seasonal Employees
Employers are not ALEs if their workforce is over 50 full-time employees for 120 days or fewer in the previous calendar year, and all the employees above the 50 full-time employed workers are seasonal workers employed for no more than 120 days.
Employees with VA/TRICARE Coverage
Employees with coverage under a VA health program or TRICARE do not count toward determining whether an employer is an ALE.
What Happens If I Don’t Report Employee Hours Correctly?
What are the consequences if you do not report employee hours correctly? You must pay a penalty if you are an eligible employer and the following circumstances apply:
- Your company does not offer health insurance to at least 95% of full-time employees.
- At least one of your full-time employees received a cost-sharing subsidy or premium tax credit in the federal or state Marketplace.
You must offer coverage that provides minimum value and is affordable. Coverage is affordable if the required contribution from the employee is not more than 8.39% in 2024 of the employee’s household income. For a plan to provide minimum value, it must cover at least 60% of a standard population’s covered healthcare expenses.
You may have to pay penalties if you do not report employee hours correctly, such as the ACA part-time employees penalty. The penalty for failing to file an accurate information return is $270 for every return in which the failure is present.
The total penalty in a calendar year can reach $3,339,000. You can incur the same amount for failing to provide a correct payee statement. Penalties may get waived if the failure was a result of reasonable cause rather than willful neglect.
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